4 Reasons Why Telus Corporation Is a Steal at Under $40

At less than $40 per share, Telus Corporation (TSX:T)(NYSE:TU) is an absolute steal and should be bought for four reasons. Is there a place for it in your portfolio?

| More on:
The Motley Fool

Telus Corporation (TSX:T)(NYSE:TU), one of Canada’s largest telecommunications companies, has watched its stock fall over 9% in the last year and over 11% in the last six months, but I think it is an absolute steal at less than $40 today. Let’s take a look at four of the primary reasons why I think this and why you should be a long-term buyer of the stock today.

1. Its strong financial results could support a higher share price

On February 11, Telus announced very strong earnings results for its fiscal year ended on December 31, 2015, but its stock has responded by falling about 1% in the trading sessions since. Here’s a summary of 10 of the most notable statistics from fiscal 2015 compared with fiscal 2014:

  1. Adjusted net income increased 4.7% to $1.56 billion
  2. Adjusted earnings per share increased 6.8% to $2.58
  3. Operating revenues increased 4.2% to $12.5 billion
  4. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 4.6% to $4.49 billion
  5. Adjusted EBITDA margin improved 10 basis points to 35.9%
  6. Cash provided by operating activities increased 4% to $3.54 billion
  7. Free cash flow increased 2% to $1.08 billion
  8. Total subscriber connections increased 2.2% to 12.5 million
  9. Total wireless subscribers increased 2.1% to 8.46 million
  10. Total wireline subscribers increased 2.3% to 4.04 million

2. It’s undervalued based on both current and forward valuations

At today’s levels, Telus’s stock trades at just 15.3 times fiscal 2015’s adjusted earnings per share of $2.58, only 14.6 times fiscal 2016’s estimated earnings per share of $2.70, and a mere 14 times fiscal 2017’s estimated earnings per share of $2.81, all of which are inexpensive compared with its five-year average price-to-earnings multiple of 17.3 and the industry average multiple of 22.2.

With the multiples above and its estimated 6.5% long-term earnings growth rate in mind, I think Telus’s stock could consistently command a fair multiple of at least 17, which would place its shares around $46 by the conclusion of fiscal 2016 and around $48 by the conclusion of fiscal 2017, representing upside of more than 16% and 21%, respectively, from today’s levels.

3. It has a great dividend

Telus currently pays a dividend of $0.44 per share quarterly, or $1.76 per share annually, which gives its stock a high and safe yield of about 4.5% at today’s levels.

It is also important for investors to make two notes.

First, the company has raised its annual dividend payment for 12 consecutive years, and its recent increases, including its 4.8% increase in November 2015, has it on pace for 2016 to mark the 13th consecutive year with an increase.

Second, it has a program in place to raise its dividend by another 10% in 2016, which it will accomplish by announcing increases in May and November.

4. It has been purchasing its shares

Telus has been actively purchasing its shares, including 15.8 million shares for a total cost of $612 million in fiscal 2014 and 15.6 million shares for a total cost of $635 million in fiscal 2015, and this has all been a part of its $2.5 billion multi-year share-purchase program that began in May 2013.

In order to keep its program going, the company announced its 2016 normal-course-issuer bid on September 11, 2015. This program will enable the company to purchase up to 16 million of its common shares for an aggregate purchase price of up to $500 million from September 15, 2015 and ending on September 14, 2016.

These purchases will boost Telus’s earnings-per-share growth potential going forward, and it shows that the company is fully dedicated to maximizing shareholder value.

Is there a place for Telus in your portfolio?

I think Telus represents one of the best long-term investment opportunities in the market today, so all Foolish investors should strongly consider making it a core holding.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

More on Dividend Stocks